How the Sleepy FCPA Became a Hulk and Why It’s Staying that Way

Then-Secretary of State Henry Kissinger, left, with Sen. Frank Church, who cited the shame of ‘corrupt capitalism’ in a 1976 speech.

The Foreign Corrupt Practices Act is among the most notorious statutes in the world, and the Justice Department and Securities and Exchange Commission have taken pains in recent years to make it so.

Few multinational companies can afford to ignore the 1977 law, which bars foreign bribery and requires companies to keep accurate books and records. U.S. companies, companies that trade on U.S. stock exchanges, and even foreign companies that further corrupt schemes in the U.S. fall under the FCPA’s prodigious umbrella. Foreign subsidiaries? Yep, those too, if U.S. authorities can show the conduct in question was “authorized, directed, or controlled” by the parent company.

By now, corporate officers know all this. In recent years, the U.S. government has pulled in billions of dollars — that’s billions with a B — in criminal and civil penalties against some of the world’s largest companies: Siemens AGHalliburton Co., Panalpina World Transport Ltd Pfizer Inc., Johnson & Johnson, and this list goes on.

In Tuesday’s Wall Street Journal, we give the FCPA a good workout. Why now? FCPA enforcement shows no signs of cooling. The average FCPA penalty — about $25 million in most years — isn’t eye-popping, but companies often spend millions more on internal investigations.

Which brings us to our first story of four: The post-Watergate law has become big business for the lawyers who delve into the operations of companies in response to an investigation by the Justice Department and the Securities and Exchange Commission—or to avoid one. The result is a mini-industry of investigators and white-collar criminal-law practices. We highlight three companies – Avon Products Inc., Weatherford International Ltd. and Wal-Mart Stores Inc. — that have spend about a half a billion dollars combined on internal investigations.

Why pay that much? Companies have made the calculation that spending huge sums on an internal FCPA probe is better than being indicted or taking a case to trial, lawyer say. Advocates for the FCPA say the process has led companies to tighten their controls over foreign subsidiaries, which has long-term benefits for their operations and the integrity of world commerce.

If this all sounds very familiar to you, we have three more stories that may be of interest.

• The history of the FCPA: The 1977 law was plucked out of relative obscurity in the middle of the past decade by converging forces: an ambitious prosecutor, a landmark 2002 measure requiring companies to do more to verify the accuracy of their financial statements, two big anticorruption treaties and an increase in the number of multinational companies. Though it bars U.S. companies and those listed on U.S. stock exchanges from paying bribes to government and other state-employed officials overseas, the law driven initially by foreign-policy concerns — and a certain SEC enforcement director whose interest was piqued while watching the Watergate hearings.

• Compliance: Companies spend millions of dollars probing allegations of bribery, sure. They also are shelling out vast sums to avoid having to investigate in the first place. Companies in a wide swath of industries have added compliance committees to corporate boards, created compliance and ethics departments headed by former government officials and, in some instances, added costly processes to daily operations to make sure money isn’t changing hands improperly overseas.

• Prosecuting individuals: While the government has been successful in reaching multimillion-dollar settlements with companies under the Foreign Corrupt Practices Act, it is struggling to bring corporate executives to trial on foreign-bribery charges. When the Justice Department indicted eight businessmen last December on charges they bribed officials in Argentina in order to win a big government contract prosecutors hailed it as a landmark in their battle against corruption. But the ”Siemens 8″ have yet to make their initial appearance in court and are still living freely in Argentina, Germany or Switzerland. Even countries that share good diplomatic relations with the U.S. can be reluctant to turn over defendants for violating a U.S. law that makes crimes out of payments some regard as business as usual.

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The Law Blog covers the legal arena’s hot cases, emerging trends and big personalities. It’s brought to you by lead writer Jacob Gershman with contributions from across The Wall Street Journal’s staff. Jacob comes here after more than half a decade covering the bare-knuckle politics of New York State. His inside-the-room reporting left him steeped in legal and regulatory issues that continue to grab headlines.

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